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ID number:184921
Published: 18.05.2021.
Language: English
Level: College/University
Literature: n/a
References: Not used

Problem 14:
Suppose the cost of equity of the company is 16%. If the company has a capital structure of 50% debt and 50% equity, a before-tax cost of debt of 5%, and a marginal tax rate of 20%, what is its weighted average cost of capital?

0.5*0.05*(1-0.2)+0.5*0.16= 8,02

Problem 15:
XYZ Company sells a product at a price of €4.00 per unit. The product’s variable cost per unit is €2.00. The product has fixed cost of €10,000. What is the company’s breakeven point, in units?

10000/(4-2) = 5000 units

Problem 16:
The company sells 10,000 units at a price of €5 per unit. The company’s fixed costs are €8,000, interest expense is €2,000, variable costs are €3 per unit, and EBIT is €12,000. Estimate the company’s degree of operating leverage (DOL), degree of financial leverage (DFL) and total leverage (DTL). Interpret your results.

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